Peter Thiel Just Revealed How Utterly Screwed The Entire AI Industry Is

The AI bubble is bursting.

Photo by Pawel Czerwinski on Unsplash

I might temporarily regret that subtitle. I am writing this literally hours before Nvidia’s Q3 earnings report is released. This report has loomed large over the AI industry, as, depending on the data involved, it could bolster or crush the AI bubble. But, even if Nvidia smashes its earnings target, and this stupid bubble gets one last breath of air, it won’t matter. I genuinely believe the mechanisms in place to pop the bubble are already bursting it. Why? Because Peter Thiel has just sold off his entire stake in Nvidia. That alone isn’t much. But when you pull the thread and ask, “Why has the person at the core of this AI movement sold every last share of one of the best-performing AI stocks?” and “Why now has the entire AI narrative fallen apart?”, the imminent crash becomes painfully apparent. Let me explain.

A filing on November 17th showed that Peter Thiel’s hedge fund had sold off its entire $100 million stake in Nvidia sometime during the 2025 third quarter. This one sale alone shrank the fund’s holdings by two-thirds and netted a truly enormous profit.

Nvidia is the best-performing AI stock, having grown by roughly 100% this year. Not only that, but its deals with OpenAI, Corewave and others are set to rake in hundreds of billions in revenue over the coming years. In other words, if the AI bubble isn’t a bubble at all and instead a fledgling industry, then Nvidia will likely continue to grow at this astonishing rate for the foreseeable future. So, why has Thiel sold up? He himself, as the founder of Palantir, an early investor in OpenAI, and a venture capitalist behind almost all big AI projects, had a significant hand in forming and growing this AI frenzy. He has a huge vested interest in AI not being in a bubble. So why sell Nvidia, and why now?

Debt & Nvidia

Well, when you look at Nvidia’s customers and how they are financing their enormous purchases from Nvidia, you quickly realise that this gravy train isn’t going to last long.

I have covered this topic before (read more here), but the AI startups used to use equity financing (where a company sells off shares to raise funds) to pay for AI’s spiralling costs, whereas established companies like Meta and Amazon used their giant hoards of cash reserves. However, these are no longer enough to keep the AI money pit satiated, and so the entire industry is rapidly turning to debt financing to keep the lights on. Alphabet, Amazon, Meta, Microsoft, and Oracle have issued around $100 billion in bonds (a form of debt financing) so far this year, with the significant majority being issued since September. Likewise, OpenAI is now actively looking to raise debt to pay for its $1 trillion-plus expenditure plans.

This is a genuinely gargantuan increase in borrowing for these companies. Especially when Big Tech has historically been incredibly cash-rich.

But this debt is good, right? Almost all of that money is going to be funnelled into Nvidia to build these AI hyperscaler colossal datacentres from their chips. So, what is the problem?

One word: risk.

The AI industry is actually moving further away from profitability, as costs are increasing exponentially while revenue growth stagnates, thanks to AI models not being all that useful and their improvement crawling to a halt (read more here). This problem is so overwhelming that even if these generative AI giants came to dominate markets like search engines or the porn industry, there wouldn’t be enough revenue to get even close to profitability (read more here).

This has caused some significant issues within the AI bubble. For example, Meta’s stock is down 25% from August. This slide is almost entirely due to investors worrying that Meta’s AI program can’t repay the nearly $30 billion in debt it is raising to fund its development. Other AI companies, like Microsoft, are down 9% in just over a month for similar reasons. This has made equity financing a no-go, not just for these established companies but also for the AI startups like OpenAI, which are tied at the hip to them.

That means debt is the only real way for these AI programs to keep going. Unfortunately, that isn’t sustainable at all, leading lenders to become extremely cautious.

As such, AI-tied bond insurance (a type of insurance that guarantees payment on a bond, protecting against default) has grown from less than $25 billion before September to well over $100 billion. Notice that this timeline matches perfectly with Alphabet, Amazon, Meta, Microsoft, and Oracle’s bond sell-offs? This is a glaring sign that private and institutional investors are expecting the bubble to pop imminently and for these loans to default. But, as demand for these insurances rises, their cost increases. So, this significant leap in AI-tied bond insurance means that the entire AI industry is going to have a far harder time raising funds through debt.